Can Etisalat make 3G work? (page 1 of 2)

UAE-based Etisalat, the Middle East's hugely profitable telecommunications and Internet service provider, is facing a crisis of confidence. And 3G is at the root of it.

Etisalat is the only regional telecom to have charted out a road map for its transition to a third generation (3G) mobile telephone service, which promises the possibility of permanent connection to the Internet and faster data transmission speeds. According to Etisalat officials, 3G will open up another huge market for the operator in years to come, bringing with it a higher revenue stream, as it will initially be offered as a premium service. They point to the record mobile phone penetration in the country - about 70 percent - and say that many subscribers will happily switch to 3G.

The telecom monopoly's officials appear to be undeterred by the grumbles emanating from Europe, where operators have had to make grossly expensive payouts for 3G licenses in the last couple of years. According to Etisalat's original blueprint, while it currently operates on a 2G platform, 3G will be a reality in the UAE by mid-2004. Trial tests have already commenced, and the company has roped in some of the leading equipment vendors. It's a who's who of the global telecommunications industry: Ericsson, Siemens, Alcatel and many others.

But, lately, doubts have started to be expressed in private among top Etisalat officials about the project's viability and schedule. There is a possibility that the original schedule may not be feasible, and the more likely timetable for a full launch will be early 2005.

One reason being touted for the "partial reconsideration" is that original estimates for the project have proved to be too optimistic. So much so that Etisalat is now "forcing" the vendors to offer better (meaning lower) quotes if they are to be considered for the final phase of the trials, say industry sources.

"If they believe that 3G can be implemented at the lowest cost possible, then Etisalat is better off not doing it. Low cost and 3G are purely contradictory terms," said a senior official with one of the vendors in the running for the contract. "We are in constant talks with Etisalat to reach an understanding on the costs involved, and I am still hopeful that something positive will emerge."

Etisalat has closely guarded the details of the costs involved, preferring to hide behind the wall of "billions of dirhams." A realistic estimate for the full 3G implementation cycle, according to analysts, would have to start at over 4 billion dirhams ($1 billion). According to its 2001 annual report, the company has earmarked 3.4 billion dirhams for the development of its infrastructure over the next two years.

Elsewhere across the globe, there have been formal announcements about a postponement in 3G launch plans in major markets, except for Japan, which is going ahead with the I-Mode program for launch in 2003. The spate of failures in the global telecommunications sector in recent months has added another factor to the equation. This being the case, 3G is yet to be fully tested in any market. As for the other regional telecoms, they are concentrating on getting their GSM numbers in place. Mobile phone penetration in these markets still leaves room for substantial growth.

The Saudi Telecommunications Company (STC) recently awarded a major contract to Britain's ailing Marconi for an expansion of its GSM network.